I've wanted to write this post for a long time, however, I just haven't gotten around to it. Over the years, clients and others I've talked to have been reluctant in initial conversations about long-term care planning to consider the purchase of long-term care insurance (LTCI) because they thought that Medicare will take care of them.
Let's put it this way, if you're part of this school of thought, you experience a long-term care event, and you don't have LTCI, you're in for a big surprise. A large part of the problem is that most people don't know what constitutes a "long-term care event," let alone how this compares to what Medicare will cover.
Long-term care planning, and, in particular, long-term care insurance (LTCI) is getting a lot of attention recently with gender-based pricing just around the corner. If you haven't heard by now, Genworth, the leader in the LTCI industry, will be changing the rules of the game beginning in April when it charges higher premiums for single women on new policies.
Window of Opportunity
This development, together with Genworth's announcement last Wednesday that it's suspending sales of LTCI in California effective March 21st, has the industry abuzz and the public scrambling to find and implement solutions to quickly meet their needs. Genworth's latest announcement came in response to the company's introduction of a new product with higher premiums and reduced benefits.
As explained in the last two weeks' posts, Invest in FIA to Fund LTCI Premiums When Retired – Parts 1 and 2, the purchase of long-term care insurance ("LTCI") needs to be a lifetime commitment. It isn't enough to plan for how you will pay for your LTCI premiums during your working years. Planning for the potential purchase of a LTCI policy should be included as part of the retirement income planning process to determine the sources of income that will be used to pay for LTCI throughout retirement.
One potential source of income that can be used to fund LTCI premiums during retirement is a fixed index annuity ("FIA") with an income rider. As explained and illustrated in the last two weeks' posts, with a FIA, you can determine the initial and ongoing investment amounts required to produce a targeted amount of income to match your LTCI premiums, including projected increases in same.
Part 1 of this post alluded to a perfect storm awaiting many long-term care insurance ("LTCI") policy owners when they retire, an analysis of which should be included as part of the planning process when the potential purchase of a LTCI policy is being considered. The perfect storm is as follows:
Due to potential sizeable ongoing benefits, LTCI premiums aren't inexpensive.
Depending upon when a policy is purchased, LTCI premiums may need to be paid for 30 to 50 years.
While historically infrequent, LTCI premium increases can be significant.
Although it may be needed in one's 50's, long-term care is more often required in one's 70's, 80's, or 90's.
Premiums may be affordable when employed; however, this may not be the case when retired.
The last item in the list is critical. Given all of the foregoing items, when you purchase a LTCI policy, it needs to be a lifetime commitment. As part of this commitment, you need to have a plan in place for how you will pay for your LTCI premiums not only during your working years, but for the rest of your life.
The need for long-term care is created by one or both of the following conditions/impairments:
A chronic medical condition that compromises the individual's ability to get through the most basic of daily routines
A cognitive impairment that compromises one's ability to safely interact with his/her environment
Long-term care is costly. According to Genworth's 2012 Cost of Care Survey, national median hourly rates for licensed homemaker and home health aide services are $18 and $19 per hour, respectively, adult day health care is $61 per day, assisted living facilities are $3,300 per month, and semi-private and private rooms in nursing homes are $200 and $222 per day, respectively. These are median costs. Actual costs in specific areas of the country may be much greater.